Study: Pensions not a panacea

By Ian Salisbury

What do employees lust after most these days? A fat bonus? A bigger salary? Extra time off? According to one new study, a surprising number covet something their parents might well have taken for granted: A pension plan.

The survey, released earlier this month, was conducted by benefits consulting firm Towers Watson, largely as an effort to help companies understand how to attract and motivate workers.

Shutterstock.com

In several head-to-head questions, researchers asked whether workers would prefer it if their employers offered them a guaranteed retirement benefit (essentially a pension) or other perks. A large plurality – 49% — chose the pension over the opportunity to earn a bigger bonus. (Just 26% picked the bonuses, while the rest didn’t express a preference.) The pension also beat out paid vacation and a better chance at a promotion by similar margins. Guaranteed retirement income was also more popular than bigger salary hikes, although there the outcome was a closer 38% to 33%.

In some ways the numbers shouldn’t come as a big shock. In the wake of the financial crisis, many employees have turned risk-averse, according to Tower Watson Senior Retirement Consultant David Speier. “They’re more concerned about security,” he says.

But the result doesn’t necessarily speak well for the state of America’s retirement system. A generation ago, pension plans were offered to more than four out of five private-sector workers; today it’s fewer than one in three. Pensions have largely been replaced by defined contribution retirement plans like 401(k)s, which were hammered along with stock and bond prices during the financial crisis.

Of course, many government employees can still count on pensions. Speier says they’ve also lingered among private companies in sectors like utilities and energy where traditional industrial concerns have remained financially healthy. While that’s good news for workers in those sectors, other employers probably aren’t going to bring pensions back despite their popularity. Executives see the commitments as just too risky and expensive. “For the same reason employees want to them, employers don’t want to offer them,” Speier says.

There’s also some evidence workers may be looking at the past with rose colored glasses. Another recent study from the Investment Company Institute, the mutual fund industry’s trade group, argues exactly that. Its findings: In 1980, payments from private pension plans accounted for only about 8% of retirees’ overall income, compared to 53% for social security. (The rest came from other sources, ranging from other forms of government help to dividends on stocks.)

Since most 401(k)s are stocked with mutual funds, of course, the institute has a lot to gain from promoting the current 401(k) system. But the study is still worth note. The explanation: While many workers had access to pension plans thirty years ago, many failed to collect full benefits because of various factors. Switching jobs, for example, tended to reduce employees’ standing under formulas plans used to calculate payouts. The government moved to fix these problems with new laws in the 1970s and ‘80s, but by then the move to 401(k)-type plans was already underway.

“There’s a persistent misconception that there once existed a time when private sector workers typically retired with full pension benefits,” says ICI senior economist Peter Brady. “Many actually received little or nothing.”

Story Conversation

About Encore

Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.